By Tiernan Ray

Shares of Amazon.com (AMZN) are up 8 cents, at $314.21, after the company announced new models of its “Kindle Fire” line of tablet computers. The new models, a 7-inch and an 8.9-inch version of the “Fire HDX,” with a beefed-up processor and memory, battery life, and screen display, for $229 and $379; and a simpler model, the existing Fire HD, with some improved specs, for $139, less than the original $199 price. Note that those prices are for 16-gigabyte storage configurations, and they assume the user is willing to look at ads, or “special offers,” as Amazon terms them. Removing the ads bumps up the price of the 7-inch HDX to $244.

The models become available starting October 2nd for the HD, and October 18th and November 7th for the smaller and larger models of the HDX, respectively. Amazon said it has added some new features, such as a “Mayday Button,” in the HDX, which connects the user to free 24/7 technical support.

Amazon also touts a new release of its adaptation of Google‘s (GOOG) Android operating system, the “Fire OS.” It offers the ability to run any Android application, the company says.

The HDX will be available in models that include 4G cellular data connections, for $329 and $479, respectively.

RBC Capital‘s Mark Mahaney, who has an Outperform rating on the shares, is positive on the new models, pointing out that they lead to follow-on media sales, which, combined with hardware, is becoming a very large part of Amazon’s revenue:

We view the new Kindle Fire HDX product launch and the Kindle Fire HD product refresh to be rational steps for Amazon, as new lower priced introductory options and increased functionality open the Kindle family up to a wider audience. These steps also are in sync with Amazon’s strategy to sell devices at close-to-cost prices, generating significant profits off of incremental media – and other – segment sales via the devices. As one supporting dpoint, Kindle buyers purchase 4x the amount of books from Amazon (physical and digital) after buying a Kindle. The Kindle has become powerful enough as a book selling channel to help enable to best-selling book of all time (and we don’t mean Harry Potter) to achieve that status in such a short time. Although there is no disclosure, we would estimate that Amazon is also seeing a 1x to 2x increase in music and video unit sales per Kindle Fire purchaser. All in, we believe that Kindle Ecosystem sales are contributing more than 10% of AMZN’s total revenue.

Topeka Capital Markets‘s Victor Anthony is even more bullish than Mahaney, writing that “we believe the specs and features offer a compelling economical alternative to iPads,” and noting that the the 7-inch HDX in 16-gigabyte capacity “undercuts the iPad Mini by $100.”

“Amazon is well on its way to effectively replicate Apple‘s (AAPL) business model,” he declares.

Anthony goes through what he views as the “new cool features” of the devices:

(1) Amazon provides on-screen live video tech support with the Mayday feature that can co-pilot the user through any feature by drawing on the screen. The user can see the tech support person but the tech support person cannot see the user; (2) wirelessly beam or cast content on the Kindle HDX device to a TV using a certified Miracast-enabled accessory or TV. Hopefully this will be available on Google’s Chromecast. There is also a Second Screen app that turns the user’s TV into the primary screen, freeing the Kindle Fire for other functions while the user watches a movie. Second Screen will be available starting in October for PlayStation 3 and Samsung TVs, and later this year for PlayStation 4; (3) users can download Prime Instant Video movies and TV shows to their device, the only online video service in the U.S. that allows this. Way cool; (4) a built in Office suite for word, Excel files (5) Goodreads integration – see what friends are reading, rate books, etc.

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There are 17 comments

SEPTEMBER 25, 2013 1:39 P.M.

Jeff wrote:

So reading between their gibberish, what does this add to their bottom line? Analysts love to express their love for this company without any hard numbers to back up their comments. If Amazon was replicating Apple's business model, they would be making money.

SEPTEMBER 25, 2013 2:10 P.M.

Martin wrote:

The quote from the Topeka analyst about Amazon replicating Apple's business model is hard to figure out, since Amazon, according to Jeff Bezos, doesn't look to make money on the sale of the device but via purchases of content, after the device is sold.

Apple's model is opposite that of Amazon's in that, to state the obvious, Apple enjoys healthy gross margins on all of their devices and uses content sales, which are basically a break-even business, to make the purchase of the device more attractive.

Also, despite the introduction of the Kindle Fire, Amazon worldwide quarterly media sales have gone from a year over year growth of 19% in 1Q12, the quarter after the Fire went on sale, to 7% in 2Q13. So, media sales growth has actually decelerated during the time the Kindle Fire has been on sale.

SEPTEMBER 25, 2013 2:24 P.M.

Anonymous wrote:

I want to see the guy make money. Okay.

SEPTEMBER 25, 2013 2:26 P.M.

Ed wrote:

Gun this! Another Jerk off article.

SEPTEMBER 25, 2013 2:29 P.M.

Sal wrote:

LOL The only thing Amazon has in common with Apple is that it starts with the letter A. Other than that, Amazon is a complete waste of time and money. In fact, they haven't made a penny since they went public. Jeff and the Magic Carpet ride. Give us all a break and spare Apple the joke of being compared to Amazon.

SEPTEMBER 25, 2013 2:31 P.M.

tamoem wrote:

This makes complete sense Amazon releases zero detail on it's sales numbers on devices/content but they're going to stomp on Apple! Heard this story before, just like the iPhone 5s would be terrible. One thing that's true Apple stock is worthless to own while Amazon and others are killing apple in the financial marketplace. It's just like Washington, the group with the best non-fact wins.

SEPTEMBER 25, 2013 2:39 P.M.

Paul wrote:

Only Tim Cook and Apple let this manipulation occur against Apple. Why, no Leadership with Balls and an invisible and useless IR team at Apple.

SEPTEMBER 25, 2013 3:08 P.M.

major wrote:

apple should buy yahoo and control ali baba

SEPTEMBER 25, 2013 3:13 P.M.

Fuzzy wrote:

Wow! connect to a "TV using a certified Miracast-enabled accessory " Some phones have Miracast built in. Hey just another $50 to Amazon for a Miracast dongle.

SEPTEMBER 25, 2013 3:54 P.M.

Rottan Frewt wrote:

Why is it only Apple that is always doomed? Amazon's share price will continue to climb because everyone believes that Amazon is going to undercut Apple and Apple is going to have to leave the tablet business. How come Tim Cook can't put any value into Apple like Jeff Bezos does with Amazon. Every damn holiday season Amazon comes out with a new tablet and Wall Street always says it's going to be THE TABLET to beat the crap out of the iPad during the Christmas season. Amazon's share price goes up and Apple's share price goes down. Why can't Tim Cook take control and beat the stuffing out of Amazon's Kindles. Amazon is going to come out with a whole bunch of ads showing how the Kindle is ten times better than an iPad for half the price. Apple does nothing and Apple shareholders have to bend over and take it. In the end, Amazon's share price comes out smelling like a rose and Apple's share price comes out looking like fertilizer. Jeff Bezos never tells Kindle Fire sales numbers but Wall Street just knows they're immensely eating into iPad market share. What does Tim Cook say? Nothing. Apple's share price drops a bit further.

Why on god's green Earth can't Apple do something to stop their rivals from kicking Apple in the nuts at every turn. Apple can't even get in the green for this whole year while the whole market and every other tech company has gone up almost 20% YTD. Apple stock is just totally futzed thanks to Tim Cook. Jeff Bezos is considered a CEO god. Tim Cook is considered a CEO clown. Apple, please stop this madness. You're really killing faithful shareholders. Please put out some product that shareholders will actually see some cash returns from.

Hey Martin:
Amazon YTD up 25%
Apple YTD down -9%

Amazon's business model is working way, way, way better than Apple's. Jeff Bezos knows how to please shareholders. Tim Cook is only pleasing himself. Apple is doing something very, very wrong because the stock has been going nowhere for almost a year. Does that make any sense to you? Probably not since you believe everything at Apple is just fine and dandy.

SEPTEMBER 25, 2013 4:15 P.M.

Anonymous wrote:

The "analysts" are really mentally challenged morons. they are always wrong with their guesstimates and NEVER admit it. They are vindictive when exposed. They should all be fired.

SEPTEMBER 25, 2013 4:18 P.M.

brian wrote:

same business model as apple but without the profit. lol

SEPTEMBER 25, 2013 4:49 P.M.

John wrote:

I believe Topeka Capital had a $1,000 price target on Apple within the last ten months. Has he changed that since Amazon is "gunning" for Apple? Who pays for this kind of research? What is their price target now?

Amazon's zero margin approach is a definite threat to Apple, PC OEMs, Microsoft, etc., the same way Google's is. The difference is Amazon make very little money compared to Google. So their ability to sustain this is predicated on the ongoing willingness of shareholders to keep ignoring the profitability promises that never get fulfilled and keep bidding the stock up anyway. How long can that go on? The PE is insane by historical norms, but it has been that way for years now. I like the company as a consumer. But the premium built into their stock price is scary as an investor.

SEPTEMBER 25, 2013 10:59 P.M.

Zippero wrote:

In 2012, a supposedly down year for Apple, Apple went from $394 to $522, adding about $125 billion to its market cap, which is almost as much as AMZN's entire $140 billion market cap today. Not bad for a supposed bad year for Apple! By the end of the year, don't be surprised to see Apple add another Amazon to its market cap belt.

SEPTEMBER 26, 2013 10:45 A.M.

Steve M wrote:

Plot the aapl and amzn stock prices over the last 5 years and you will see that they have tracked each other quite closely (in terms of growth) for much of that time. 18 months ago aapl was way above amzn indicating that it was probably a good time to sell aapl and buy amzn. Now amzn is ahead of appl indicating that it is probably a good time to sell amzn and buy aapl. I assume that both stocks will slow down their growth due to market saturation.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.